Nice inflation surprise for South Africa

South African annual inflation eased more than expected in July, strengthening the argument for the Reserve Bank to keep interest rates on hold as it assesses the fallout from the war in Iran.

Consumer prices rose 4.3% compared with 5% in June, Pretoria-based Statistics South Africa said in a statement on its website on Wednesday.

That was slower than the median estimate of 4.5% in a Bloomberg survey of 18 economists. Month-on-month inflation rose 0.2%, compared with 0.7% in June.

The rand extended its gains, trading 0.5% stronger at 16.18 per dollar by 10:31 a.m. in Johannesburg.

“It’s a good number,” said Gina Schoeman, Citigroup’s South Africa economist. “Our view is for one more 25 basis-point hike in September, determined by data and underlying inflation, or unchanged at higher for longer.”

The July inflation report coincided with a decrease in South African petrol prices as crude oil retreated from the highs reached in the early stages of the Middle East conflict, though prices remained volatile.

The South African Reserve Bank held interest rates at 7% last month, citing an improved outlook for inflation and confidence that price pressures would return to its 3% target.

It raised rates in May and said the move meant it could be patient as it gauged the outlook. The SARB will announce its next policy decision following its meeting on Sept. 23.

Core inflation, which excludes food and non-alcoholic beverages for a clearer read on underlying price trends, accelerated slightly to 4.2% at an annual rate, up from 4.1% in June, while edging down to 0.5% month-on-month from 0.6%.